Here's a nice balanced summary of the Roach/ Summers/ Makin/ Richebacher/ ClownFreeZone view of the upcoming de-boom era:
America’s recent combination of a sustained boom in business investment together with a deep slump in household saving is historically unprecedented. As a result, private-sector net saving, the difference between the total saving and investment of households and firms (that is, the extent to which they need to borrow to finance their spending) has moved dramatically, from a surplus of 5% of GDP in the early 1990s to a deficit of 6% last year.
To find similar recent cases, it is necessary to look abroad—disturbingly, to Japan, Britain and Sweden in the late 1980s. All three experienced a similarly dramatic deterioration in private-sector net saving; in their cases, the switch coincided with booms not just in share prices but also in the price of property. When asset prices tumbled, firms and households tried to restore their financial positions and net saving increased sharply. This caused deep recessions. In Britain, during the boom, private-sector net saving fell from plus 5% in 1985 to minus 6% in 1989; then, as recession took hold, it reversed even more abruptly, to plus 6% by 1994. Japan’s net saving fell from plus 5% in 1986 to minus 2% in 1990. Later, it rebounded. Again that caused a deep recession, from which the economy has yet to recover, ten years on.
economist.com |
